Author Topic: How to handle wedding money from parents?  (Read 3327 times)

SunnyAnd75

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How to handle wedding money from parents?
« on: July 19, 2017, 07:29:53 AM »
Hello! This is my first time posting, but I have been reading MMM and the forums for several years and have learned so much! :)

I recently got engaged, and my fiance and I are planning a wedding for the spring of 2018! I will be graduating college in December, and he has already graduated and is working. My mom has so generously offered us $15,000 as a gift to pay for our wedding or to save as much as we would like. This money is currently invested in an Invesco account, and my question is how to handle this money?

We have decided to spend $7,000 on our wedding, $3,000 on our honeymoon, and save the remaining $5,000. I have an old car that probably won't last too many more years, and so we wanted to save some towards that. Just for context, we are not combining finances until after the wedding.

However, I am not sure how to handle the $15,000. We are planning to spend $10,000 of it in the next 6-9 months for wedding/honeymoon. My mom can transfer it to my checking account for us to spend. Should she go ahead and transfer all of it now, or should we do more gradual as-needed transfers over the next 6-9 months? My main concern here is that since we are definitely planning on using that $10,000, it might not be a good idea to leave it invested due to volatility concerns. If we had a big market correction tomorrow, our wedding/honeymoon budget could be in trouble. Therefore I am leaning towards converting it all to cash right now - does this sound right? I really don't know how taxes fit into cashing this money out.

For the remaining $5,000, I am not sure if we should:
A) leave it in the invesco account as part of our portfolio once we are married.
B) cash out the money and add it to our emergency fund.
C) somehow roll it over to a retirement account (not sure if this is possible?)

For more context - my fiance has a very stable government job, and I will be job searching in his area and moving out there after the wedding (we are not in the same city). Neither of us have any debt. Here are our current financial situations:

Me:
$1700 checking
$10,000 in a High Yield Savings Account (my emergency fund)
$8,500 in a Roth IRA

Him:
$5,000 checking
$20,000 mutual fund
contributes a large chunk (I think 20%?) to his work retirement account each month

My fiance considers his mutual fund as his emergency fund, where I prefer to have cash. Basically, I think there are several "right" answers for how best to handle this, but I would love some input/advice from financially savvy people! Thanks :)

marty998

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Re: How to handle wedding money from parents?
« Reply #1 on: July 19, 2017, 07:52:33 AM »
You are right to be cautious, and you are right to know there are several "right" answers :)

Here's a question... how much do you think you could save over the next year? Would you be able to save that $10k anyway?

Overflow

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Re: How to handle wedding money from parents?
« Reply #2 on: July 19, 2017, 07:52:58 AM »
Welcome to the forums and congrats on the upcoming wedding!

If you are for sure going to use the 10,000 for the wedding in the next 10 months, than I would pull it out of any equities and convert it to some sort of cash equivalent. My guess is you will begin dipping into that fund in the coming months as you buy a dress, deposit for the venue and various vendors, etc. I don't see a lot of value in leaving it invested in the market based on your timeline.

It sounds like you are both good planners and sharp with money, so I don't see it being an issue to just transfer the 15,000 into your account. If you think you will be tempted to use that money for anything besides wedding expenses, it might be best to let your mom keep it, and just come to her each time you need to pay for something wedding related.

For the other $5,000, you really need to sit down with your soon-to-be husband and figure out what your financial goals are.


A) it's hard to offer any opinion about the Invesco account without more information about exactly what it is invested in. Care to provide any more details on this?
B) If you are concerned about your car breaking down than it might be worthwhile to pad the EF so you can absorb the impact.
C) Yes you could put it into a retirement account. You could open a Traditional IRA through Vanguard or something and pretty much max it out (5,500 is max). If you feel confident your E-fund is sufficient than this is a good option.




SunnyAnd75

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Re: How to handle wedding money from parents?
« Reply #3 on: July 19, 2017, 08:32:51 AM »
Thanks so much for the advice guys! I am glad to get confirmation that transferring the money out of equities now is a good idea!

Here's a question... how much do you think you could save over the next year? Would you be able to save that $10k anyway?

Personally, I would not be able to save that much. I make generally around $450 a month working part time, and I usually save as much as I can after I help pay for my expenses. I also try to contribute as much as I can to my Roth IRA. If I stopped contributing to Roth IRA, I think I would still only be able to save maybe $1-2k by the spring. I hadn't thought about trying to cashflow wedding/honeymoon expenses... We could only do that if I used my emergency fund $10k, however. My fiance wouldn't have $1-2k additional cash each month to cashflow either without using the Invesco... Still an interesting idea I will ponder more!

My guess is you will begin dipping into that fund in the coming months as you buy a dress, deposit for the venue and various vendors, etc. I don't see a lot of value in leaving it invested in the market based on your timeline.

It sounds like you are both good planners and sharp with money, so I don't see it being an issue to just transfer the 15,000 into your account. If you think you will be tempted to use that money for anything besides wedding expenses, it might be best to let your mom keep it, and just come to her each time you need to pay for something wedding related.

Yes, I have already purchased a dress, and we have several deposits coming up in the next 1-2 weeks! And thank you, we are definitely planners! :) If anything, I am definitely an over-planner! And we both know how very blessed we are to be in the positions that we are! We also both use YNAB, so I have zero concerns about using the money for non-wedding concerns. I am obsessed with YNAB/budgeting!

For the other $5,000, you really need to sit down with your soon-to-be husband and figure out what your financial goals are.

A) it's hard to offer any opinion about the Invesco account without more information about exactly what it is invested in. Care to provide any more details on this?
B) If you are concerned about your car breaking down than it might be worthwhile to pad the EF so you can absorb the impact.
C) Yes you could put it into a retirement account. You could open a Traditional IRA through Vanguard or something and pretty much max it out (5,500 is max). If you feel confident your E-fund is sufficient than this is a good option.

A) Ok I just checked and the Invesco account is invested in the mutual fund LCEIX. It looks like the net expenses per prospectus are 0.78. Is that what you were looking for?
B) Yes, that's kind of what I was thinking too... Starting a car fund is going to be a big priority for me after I graduate, and that $5,000 would probably go there!
C) I do have a Roth IRA through Fidelity currently. It is invested in FDKLX - Fidelity Freedom Index 2060 Investor Target Date Fund. That fund has a 0.15% Net Expense Ratio. I have contributed $700 to my Roth IRA this year, and was going to just contribute $100-200 per month as I earn money. But it would be possible for me to transfer the $5,000 from Invesco to my Roth (or really it would be less b/c I won't earn $5,500 this year, and I have already contributed $700)?

I am not sure exactly what level we would want our emergency fund to be at once we are married. I would probably go for the higher end of the range. I am also thinking we would like to have a little more cash on hand as we navigate wedding/honeymoon/me moving across a few states/us potentially moving to a new apartment/me searching for a job.

Thanks again for the congratulations and advice, and feel free to ask anymore clarifying questions! It's really helpful to talk things out. My mom and fiance are very solid financially, but not near as much of nerds about the details like this that I am :)
« Last Edit: July 19, 2017, 08:39:43 AM by SunnyAnd75 »

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Re: How to handle wedding money from parents?
« Reply #4 on: July 19, 2017, 08:53:07 AM »

C) I do have a Roth IRA through Fidelity currently. It is invested in FDKLX - Fidelity Freedom Index 2060 Investor Target Date Fund. That fund has a 0.15% Net Expense Ratio. I have contributed $700 to my Roth IRA this year, and was going to just contribute $100-200 per month as I earn money. But it would be possible for me to transfer the $5,000 from Invesco to my Roth (or really it would be less b/c I won't earn $5,500 this year, and I have already contributed $700)?
So yeah, I meant Roth IRA (which is after tax dollars), not traditional (pre-tax). You knew that :-).

Perhaps you could do a 50/50 split, put $2,500 into your rIRA and keep the other $2,500 for your E-Fund (or 60/40, or 40/60 whatever you and SO agree on). I would have your mom move the money into your checking account, and then you can move the $2,500 into the rIRA. I have always found that easier than trying to move money from one institution to another. Contributing to a Roth is easy and shouldn't give you any problems.

The expenses on your rIRA aren't bad (well below average).

You are right to be prepared for some extra expenses in the coming year. Setting up life together and/or moving can bring some surprises.

Have fun on the Forums. Since you claimed to be a personal finance and budget nerd, you will find lots of great people and conversations.
 




PapaBear

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Re: How to handle wedding money from parents?
« Reply #5 on: July 19, 2017, 08:57:55 AM »
One more thing to consider in your decision and transfer process should be capital gains taxes:
- How much of the 15k balance is long-term capital gains, how much is short term capital gains?
- Is the account currently owned by you or by your mother? What is the tax bracket of the owner?
- If it is in your mothers name, an in-kind transfer to an investment account owned by you could be best, since you might fall under the 15% tax bracket and thus would not pay any tax on long-term capital gains when selling the funds.
- For the portion with short-term capital gains, it might be worthwhile to wait a bit longer until there are converted to long-term capital gains
« Last Edit: July 19, 2017, 08:59:34 AM by PapaBear »

SunnyAnd75

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Re: How to handle wedding money from parents?
« Reply #6 on: July 19, 2017, 09:19:38 AM »
I really like the idea of splitting the $5,000 b/w Roth IRA and E-fund as well! Thanks again for your input, and I am definitely loving the forums!

One more thing to consider in your decision and transfer process should be capital gains taxes:
- How much of the 15k balance is long-term capital gains, how much is short term capital gains?
- Is the account currently owned by you or by your mother? What is the tax bracket of the owner?
- If it is in your mothers name, an in-kind transfer to an investment account owned by you could be best, since you might fall under the 15% tax bracket and thus would not pay any tax on long-term capital gains when selling the funds.
- For the portion with short-term capital gains, it might be worthwhile to wait a bit longer until there are converted to long-term capital gains

Yes so this is a big thing I was thinking about! Basically, it is a custodial account that is in my SSN but my mom has been contributing to since I was little. $300 has been contributed in the last 12 months, and $175 of that has been in calendar year 2017. Capital gains taxes would be paid by me. My tax bracket is very low because I only make $4-5k per year. My mom is in the 28% tax bracket, but I don't think that should matter. I am very unfamiliar with how this works - would it be possible to differentiate which parts are short-term and long-term when selling? I would be fine with holding the $5,000 portion in the account until it converted if possible.

FINate

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Re: How to handle wedding money from parents?
« Reply #7 on: July 19, 2017, 09:46:24 AM »
I really like the idea of splitting the $5,000 b/w Roth IRA and E-fund as well! Thanks again for your input, and I am definitely loving the forums!

One more thing to consider in your decision and transfer process should be capital gains taxes:
- How much of the 15k balance is long-term capital gains, how much is short term capital gains?
- Is the account currently owned by you or by your mother? What is the tax bracket of the owner?
- If it is in your mothers name, an in-kind transfer to an investment account owned by you could be best, since you might fall under the 15% tax bracket and thus would not pay any tax on long-term capital gains when selling the funds.
- For the portion with short-term capital gains, it might be worthwhile to wait a bit longer until there are converted to long-term capital gains

Yes so this is a big thing I was thinking about! Basically, it is a custodial account that is in my SSN but my mom has been contributing to since I was little. $300 has been contributed in the last 12 months, and $175 of that has been in calendar year 2017. Capital gains taxes would be paid by me. My tax bracket is very low because I only make $4-5k per year. My mom is in the 28% tax bracket, but I don't think that should matter. I am very unfamiliar with how this works - would it be possible to differentiate which parts are short-term and long-term when selling? I would be fine with holding the $5,000 portion in the account until it converted if possible.

I'm confused now. If this is a custodial account are you not an adult, or not reached the age requirement for account transfer? At age 18 or 21 (depending on the state) you should have full control of the account. You need to know this because there are tax implications, even if you don't do anything with the funds. And this is not money that your mom gave to you as a gift for your wedding...it was gifted throughout the life of the account. Still generous of your mom, but disingenuous to describe it as a wedding gift. It's already your money, you can spend it however you want (doesn't have to be wedding related).

http://www.investopedia.com/terms/c/custodialaccount.asp
http://www.marketwatch.com/story/5-things-to-know-about-custodial-accounts-for-kids-2013-05-28

Heroes821

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Re: How to handle wedding money from parents?
« Reply #8 on: July 19, 2017, 09:53:58 AM »
Just a thought, but assuming you're honeymoon will involve travel (at $3,000 it better lol).  And you know you have cash right now and wedding things to pay for you might want to look into some of the travel credit card bonus point deals.  If you can get $1000 in bonus points for spending the wedding money you were going to spend anyway you're honeymoon might only cost $1500-2000 and you get more money to save.

Plus people will probably give you money at the wedding as well. So finding out you and your husbands Investment Policy Plan for this extra $5k is important because you might get $5k more during the wedding.

SunnyAnd75

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Re: How to handle wedding money from parents?
« Reply #9 on: July 19, 2017, 09:55:34 AM »
Sorry for the confusion! It is a custodial account, and I will be 21 in a few months.

This was an account my mom started when I was little to save for my college. She was planning to use the money to pay for college expenses, but I received scholarships for college. Rather than using this money to pay for the remaining expenses for my college, my mom was able to cash flow those and not touch this account. That is why I said it was a gift even though it is technically "my money", since she could have just as easily used this account to pay those expenses and given us $15,000 cash - same result. I said "for our wedding" since that is what we both expected the majority would be spent on, but she would not care if we eloped and saved it all, or spent it on a house, grad school, whatever. Hopefully that clears up any confusion - certainly not trying to be disingenous! I cut some context because I didn't want my first post to be toooo long, haha.

PapaBear

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Re: How to handle wedding money from parents?
« Reply #10 on: July 19, 2017, 10:01:38 AM »
I am very unfamiliar with how this works - would it be possible to differentiate which parts are short-term and long-term when selling?

I am not very familiar with the specifics of custodial accounts, thus the information linked by FINate might be helpful.

However, in common investment accounts, when partially selling funds that have been purchased over a longer period of time, you can select a cost basis for the transaction (basically picking which funds are sold and which are kept). In your case, either FIFO (first in first out) or specific share identification should work well to ensure that only funds with long-term capital gains are sold. Your bank should be able to tell you how much of the shares would fall under short-term capital gains and what the options regarding your cost basis are.

Below a few links that explain the differences in the cost basis options:
- http://finance.zacks.com/fifo-method-selling-mutual-funds-7532.html
- http://www.investopedia.com/articles/mutualfund/cost-basis-mutual-funds.asp?lgl=rira-baseline-vertical
« Last Edit: July 19, 2017, 10:03:53 AM by PapaBear »

SunnyAnd75

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Re: How to handle wedding money from parents?
« Reply #11 on: July 19, 2017, 10:04:00 AM »
Just a thought, but assuming you're honeymoon will involve travel (at $3,000 it better lol).  And you know you have cash right now and wedding things to pay for you might want to look into some of the travel credit card bonus point deals.  If you can get $1000 in bonus points for spending the wedding money you were going to spend anyway you're honeymoon might only cost $1500-2000 and you get more money to save.

Plus people will probably give you money at the wedding as well. So finding out you and your husbands Investment Policy Plan for this extra $5k is important because you might get $5k more during the wedding.

Yes - definitely traveling! We are planning on going skiing in Colorado! :) I hadn't planned on doing any travel hacking, but it is certainly worth investigating if it would be right for us! We both have fairly new credit histories but good credit scores!
In terms of Investment Policy - I have been struggling with that in this time of transition/graduating/moving/job search, etc. We have discussed our financial goals, habits, and situations a lot, and are very similar in those thankfully. A short version of our current financial plan would probably look like:

1. No debt (thankfully this is the case!)
2. Emergency fund (I have $10k, he has $20k in a mutual fund, not sure exactly what number we would want in liquid savings for EF after marriage).
3. Retirement investing - he currently contributes (I think 20%, can't remember exactly) to his 401k. I contribute as much as I can to my Roth IRA (current balance $8500) but I work part-time. Once I start a full-time job, I will certainly utilize 401k options as well.
4. Our next short term goals would probably be just building up cash for my move/then maybe a different apartment/decorating/etc.
5. Longer term goals would be to save for a house down payment down the road (not within the next 3 years for sure).

Does that help?
« Last Edit: July 19, 2017, 10:07:29 AM by SunnyAnd75 »

FINate

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Re: How to handle wedding money from parents?
« Reply #12 on: July 19, 2017, 10:13:27 AM »
Sorry for the confusion! It is a custodial account, and I will be 21 in a few months.

This was an account my mom started when I was little to save for my college. She was planning to use the money to pay for college expenses, but I received scholarships for college. Rather than using this money to pay for the remaining expenses for my college, my mom was able to cash flow those and not touch this account. That is why I said it was a gift even though it is technically "my money", since she could have just as easily used this account to pay those expenses and given us $15,000 cash - same result. I said "for our wedding" since that is what we both expected the majority would be spent on, but she would not care if we eloped and saved it all, or spent it on a house, grad school, whatever. Hopefully that clears up any confusion - certainly not trying to be disingenous! I cut some context because I didn't want my first post to be toooo long, haha.

Nice! Ok, that makes more sense now.

The money is yours so there's no taxable event when you turn 21, though you need to include the account when doing your taxes (as you should already be doing).

When/if you sell assets this will be a taxable event. The capital gains rate depends on your tax bracket and whether it's short- or long-term capital gains. You can minimize the taxes by only selling shares that have been held for a year or more to get the lower long-term capital gains rate. Also, depending on the amount of capital gains and your individual tax situation, it may make sense to split withdrawals across two calendar years (later this year and early next year).


PapaBear

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Re: How to handle wedding money from parents?
« Reply #13 on: July 19, 2017, 10:20:28 AM »
Just to add on what FINate said, since you are in such a low tax bracket right now, it could even make sense to sell everything that falls under long-term capital gains, even if you want to invest part of the money again (e.g. in a low-cost fund). The rationale behind this would be to harvest the 0% capital gains tax and to step up your cost basis. However, as FINAte said, you would need to consider your individual tax situation this year and next year to decide when to sell which portion of the funds.

See this article on an overview about this method on "tax gains harvesting":
https://www.kitces.com/blog/understanding-the-mechanics-of-the-0-long-term-capital-gains-tax-rate-how-to-harvest-capital-gains-for-a-free-step-up-in-basis/

Heroes821

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Re: How to handle wedding money from parents?
« Reply #14 on: July 19, 2017, 11:28:44 AM »
Just a thought, but assuming you're honeymoon will involve travel (at $3,000 it better lol).  And you know you have cash right now and wedding things to pay for you might want to look into some of the travel credit card bonus point deals.  If you can get $1000 in bonus points for spending the wedding money you were going to spend anyway you're honeymoon might only cost $1500-2000 and you get more money to save.

Plus people will probably give you money at the wedding as well. So finding out you and your husbands Investment Policy Plan for this extra $5k is important because you might get $5k more during the wedding.

Yes - definitely traveling! We are planning on going skiing in Colorado! :) I hadn't planned on doing any travel hacking, but it is certainly worth investigating if it would be right for us! We both have fairly new credit histories but good credit scores!
In terms of Investment Policy - I have been struggling with that in this time of transition/graduating/moving/job search, etc. We have discussed our financial goals, habits, and situations a lot, and are very similar in those thankfully. A short version of our current financial plan would probably look like:

1. No debt (thankfully this is the case!)
2. Emergency fund (I have $10k, he has $20k in a mutual fund, not sure exactly what number we would want in liquid savings for EF after marriage).
3. Retirement investing - he currently contributes (I think 20%, can't remember exactly) to his 401k. I contribute as much as I can to my Roth IRA (current balance $8500) but I work part-time. Once I start a full-time job, I will certainly utilize 401k options as well.
4. Our next short term goals would probably be just building up cash for my move/then maybe a different apartment/decorating/etc.
5. Longer term goals would be to save for a house down payment down the road (not within the next 3 years for sure).

Does that help?

Colorado is amazing, I lived there for over 5 years. That sounds like a great honeymoon.  If you go in the winter and fly into Denver, It might be worth looking into taking the train. Going through the passes in a car can be stressful even on I70.   
I don't have any skiing recommendations but if you stay in Glennwood springs they have an amazing hot spring to swim and soak in even in the dead of winter.  Highly recommended from personal experience there.


I can't really offer more suggestions on your investment plans than to say read this:  http://jlcollinsnh.com/stock-series/

That's something you two have to work out on your own after some research. 

The potential issue with the travel card is if you are generating extra expenses just to get the points, but since you know the wedding will cost close to $7,000 but hopefully not over it. You might be able to get a really good deal that could cut out the most expensive part of your honeymoon.

Catbert

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Re: How to handle wedding money from parents?
« Reply #15 on: July 19, 2017, 02:40:07 PM »
Definitely sell it all this year where you will likely pay nothing on long-term capital gains and little (if any) on even short term capital gains.  Depends on whether or not you stay in the 15% income tax bracket.   Next year with 2 incomes you may be over the 15% bracket and would need to pay capital gains.  I would keep it out of market since it sounds like most of it will be spent one way or another within the next year or so.  If you car doesn't die in the next 8 months or so you can use the 5K to contribute to a Roth IRA for 2017.  By then you'll be married and can work on saving for a car and e-fun together.

Congratulations on keeping your finances separate until you are married.  always a wise decision.

YttriumNitrate

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Re: How to handle wedding money from parents?
« Reply #16 on: July 19, 2017, 04:20:46 PM »
Yes - definitely traveling! We are planning on going skiing in Colorado! :) I hadn't planned on doing any travel hacking, but it is certainly worth investigating if it would be right for us! We both have fairly new credit histories but good credit scores!
Depending on the length of honeymoon you are planning and how much skiing you will be doing, consider buying a season's pass right now. Back in March of 2012 I got married in Lake Tahoe, and with the buddy passes and the cost of tickets, the season's pass (bought the summer of 2011) paid for itself in the first three days of a 10 day stay.

https://www.epicpass.com/passes/summit-value-pass.aspx